NATALIE BARR:
Returning now to breaking news out of the United States where the US Federal Reserve has just dramatically cut the nation’s interest rate by an unusually large half a per cent.
The move follows more than 2 years of high rates which enabled the US to bring inflation down from 9 per cent back in 2022 to just 2.5 per cent last month.
MATT SHIRVINGTON:
Big news. It’s a similar situation in the UK where they’re preparing to welcome a second rate cut this year. Meanwhile here in Australia, we’re being warned not to expect any relief in the near future.
BARR:
For more we’re joined by Treasurer, Jim Chalmers, live from Brisbane this morning. Good morning to you, Treasurer.
Now I know you’ll say –
JIM CHALMERS:
Morning, Nat.
BARR:
– interest rates went higher in the US and their rate is still slightly higher than ours. But the point is they have tackled inflation, haven’t they? We haven’t. Did Australia take the wrong approach? Should we have gone harder earlier?
CHALMERS:
A couple of things about that, Nat, good morning to you and to all your viewers. It is the case that rates are still higher in the US than they are here, and you’re right to point out that they went up by more in the United States than they did here in Australia.
Their inflation also peaked much higher than it did here but earlier than it did here, so they’re a bit further along the track than we are.
For us here in Australia, we have seen a really substantial moderation in inflation. Remember the year that we were elected it was almost 8 per cent, it’s less than half that now, or around half of that now, and we’ll get some new figures next week which will tell us more.
Inflation’s come off a lot in Australia as well. Interest rates are lower here in Australia than they are in the US, and the Reserve Bank Governor herself has said that our experience here in Australia is pretty similar to what we’ve seen around the world.
BARR:
But we’re in a technical recession, thousands of businesses are going broke every year. We started lifting rates after the US and not as high. Did we go too slow, is that why we’re in this mess?
CHALMERS:
First of all, we’re not in a technical recession, that’s not quite right. Our economy continues to grow –
BARR:
Aren’t we in a per capita recession?
CHALMERS:
– but it’s growing really slowly. That’s different to the question, Nat, but I don’t want to quibble about that.
We’ve been very upfront in saying that the Australian economy is growing, but it’s growing very, very slowly, and it’s growing slowly because of a combination of the global economic uncertainty, persistent inflation, but also these higher interest rates. All of those things are combining to slow our economy and soften our labour market, but we’re also seeing inflation come off a fair bit as well.
We’re going for a soft landing in our economy. Our opponents and our critics want a hard landing, they’d rather the economy go backwards, they’d rather inflation and interest rates were higher. But what we’ve seen in Australia is inflation has come off really considerably, it is still more persistent than we’d like, but we’re making good progress, and we’ll learn more about that progress in the middle of next week.
SHIRVINGTON:
You’re right, we don’t want to hit hard, right, but we also don’t want this being drawn out. Nat’s bang on, businesses are hurting, individuals are hurting, from housing to energy, to insurance, everything’s gone up. There must be a better solution, and not just a rebate here or there, but a long‑term solution to get us back to where we need to be.
CHALMERS:
A couple of things are really important there. The fact that we turned those 2 big Liberal deficits into 2 big Labor surpluses, the Governor of the Reserve Bank has said that that’s helping in the fight against inflation, our responsible economic management. We are rolling out cost‑of‑living relief as well, but trying to do that in the most responsible way.
Your viewers might like to know, Nat and Matt, that tomorrow the pension goes up again, and the JobSeeker rate goes up again tomorrow, and we’re increasing Commonwealth Rent Assistance, and that’s all about recognising the pressures that people are under.
But more than recognising and acknowledging that cost‑of‑living pressure, we’re actually doing something about it, whether it’s tax cuts, energy bill relief, the indexation of the pension, which our opponents don’t support, increasing Commonwealth Rent Assistance, cheaper medicines.
This combination of cost‑of‑living help is the best, most responsible way that we can take some of the edge off these cost‑of‑living pressures, but to do that in the most responsible way.
Because of our efforts and because of a range of factors, we have seen inflation come off a lot here in Australia, but we need it to come off a bit more, and as I said before, we’ll get a good update on that in the monthly data that we get next week.
BARR:
Just on the childcare report, the Productivity Commission report recommending free childcare for families earning under $80,000, they also say that it’s not actually going to make much difference to the participation rate of mothers in the workforce, which is surprising to some of us. Are you going to support that?
CHALMERS:
We’re going to work through it. We think it’s a really important contribution. Don’t forget, Nat, we’re already investing billions of dollars in making childcare cheaper. We’re investing billions of dollars in paying our early childhood educators the pay that they need and deserve to look after and to teach and educate Australia’s children.
We’re making big investments already. We’re going to look at this Productivity Commission report to see what next steps that we could responsibly take. But when it comes to participation in the workforce, this is one of our big motivations. Early childhood education is a game changer for families and for the economy. We want to make it easier for people to work more if they want to work more so that they can earn more and keep more of what they earn. That’s where the Productivity Commission –
BARR:
Well, the Productivity Commission –
CHALMERS:
– is coming from as well.
BARR:
– actually says it’s not a game changer. They say that it’s actually welfare and tax systems that get more women in the workforce.
CHALMERS:
That’s one of the reasons why we’ve changed the tax cuts, Nat, so that they were better for Australian women and for parents, for people on low and middle incomes at the same time as everyone gets a tax cut.
If the point that they’re making and you’re making is that we need to do a range of things at once, I agree with that, that’s what we are doing, but I think there is an important participation benefit when it comes to early childhood education. That’s one of the reasons why we’re such big believers and big supporters in the system, why we’re already investing billions of dollars and why we’ll consider the next steps. Part of our considering the next steps will be working through this Productivity Commission report in a really methodical way.
SHIRVINGTON:
Okay, Treasurer, thanks for your time.
CHALMERS:
Thanks for your time, guys.